Rent-to-own?

Lately I have received several inquiries about the rent-to-own option.  With many want to be homeowners thinking they are unable able to obtain a mortgage they look to other avenues to get there......

Well here is your answer (short and sweet)

Lease option (aka rent-to-own):

• Gives the renter the option to purchase the home after a specified time (usually 1 to 3 years).
• The renter is not obligated to purchase the home.  In Maryland, if a home owner decides to sell a tenant occupied property, that tenant has what is called first right of refusal.  First right of refusal gives the tenant the first option to purchase the home provided they can produce financing and close the loan.
• A pre-determined portion of the rent is collect with the rent to be used toward the purchase down payment.
• Usually targeted toward people who want to own a home but lack the cash down payment, credit, and or income to qualify for a mortgage

 Lease purchase:

• Binding contract to purchase the home with a projected closing/settlement date allowing the purchaser time to save for down payment, closing cost and obtain financing.
• A purchase price is negotiated prior to signing the lease.  This can change to fair market value prior to settlement usually in the sellers favor.
• Buyer is obligated to purchase the property
• Renter may be fully responsible for the maintenance, upkeep and repairs of the house.
• Most lease purchase agreements fall through
• A pre-determined portion of the rent is collect with the rent to be used toward the  purchase down payment.
• Seller may be able to keep your down payment if you default
• Appraisals are highly recommended 

Advantages

The renter/purchaser will be able to lock in  a purchase price in advance of settlement.  You are able save for the down payment by writing  into the contract the amount of the monthly rent being applied to the down payment/purchase price. You get to try out a house and the neighborhood to assess if it is a good fit for you and your family. It also gives the purchaser time to clean up their credit.

Disadvantage

You may lose your down payment/option money  invested. In some cases the seller may have the right to keep your down payment for something as simple as paying your rent late by a day during your lease. Unlike rental security deposits, you do not get option money back at the end of the lease if you are unable or decide not to purchase the home. You could also lose the invested money if the owner goes into default or the home is foreclosed upon.  If the home fails to appraise for the agreed upon purchase price, you could also lose your invested money.

Conclusion

If you are interested in the rent-to-own or lease purchase options enter very cautiously.  I highly recommend that you get your local real estate agent and or your attorney involved. Be sure to do your homework. Read and understand all paperwork BEFORE you sign. Make sure you make all payments on time.  Have proof of where and how much your deposits are and know the balance.

 
You may be surprise to learn that traditional home ownership is obtainable There are numerous programs to get you on the path to home ownership; along with an arsenal of grants for down payment and closing cost, employee assistance programs, real estate professionals, lenders, and home ownership counselors; home ownership is closer than you think. 

Bottom line:  rent-to-own may or may not be for you.  Talk with your local Realtor to discuss this option.